http://www.paulgraham.com/swan.html); venture debt investors expect to get repaid on every investment. With venture debt investors, repayment is contractually required: every cent must be repaid. Venture debt investors typically tie their investment to business plan milestones, metrics like accounts receivable and revenue, or events, whereas most equity investors allow startups leeway to pivot. Unlike equity investors, venture debt investors are less flexible. These investors are not as concerned with reputational damage: while an equity investor may support a startup that “pivots” to find product market fit, a venture debt investor is less understanding, given the need to get repaid. Venture debt lenders are thus more apt to enforce a contract to make sure their money is returned, even if the company would be killed from such enforcement. These investors are myopically focused on losing as little money as possible; they rarely are interested in any other considerations.</p>\n<h2>Strategy: How to Approach Venture Debt</h2>\n<p>First, founders need to understand basic venture debt terminology. Founders do not need to be venture debt experts, but do need to understand their contractual obligations, particularly because venture debt lenders will rely on these contractual terms to protect their investment<a id=\"footnote1a\"><a href=https://www.ycombinator.com/"#footnote1\"><b>¹</b></a></a>. Founders need to assess which terms are important, and which ones may place their company at risk. At the bottom of this essay is a short glossary and explanation of some key terms that founders will encounter in a venture debt financing.</p>\n<p>Second, after understanding the basics, founders should consider evaluating multiple venture debt lenders in order to make the process competitive. Far too often, Y Combinator founders tell me that they met a venture debt lender, got a term sheet and quickly signed and agreed to terms. A founder would never speak to only one equity investor when raising a Series A round, but in my experience, it is common for founders to speak to only one venture debt investor. Fortunately, there are more lenders and new entrants offering venture debt, and founders now have additional options (more on this topic below). Working with a more friendly lender that you know well can make all the difference in a downside case, but you also should not drag on the venture debt raise process for months – you have a business to run.</p>\n<p>Third, founders must involve legal counsel when entering into a venture debt relationship. Again, the terms and conditions of venture debt financings arguably matter more than equity financings because lenders do not hesitate to assert their rights and will apply assertive tactics to recover every dollar they can. For example, there are important differences in the types of “defaults” that may trigger a loan to be due immediately, and experienced counsel will help protect a company and make sure that it is better positioned if things go awry. Often a startup involves counsel after a term sheet is signed, but it is better to involve counsel earlier in the process, which typically is when a company has more leverage.</p>\n<p>Please note that while venture debt investors need to protect their investment, they also deserve to be treated fairly. There are many instances where venture lenders have complained that companies were not forthcoming about their circumstances and did not provide relevant information such as their cash burn, or the loss of a significant lost contract. It does not help a company to hide from its lenders – the worst possible way to treat your lender is to make them think that everything is going according to plan, and then drop a bombshell on them when it’s too late to course-correct. Because there may be ways to restructure debt, it inures to a company’s benefit to treat its lenders fairly.</p>\n<h2>Good news: New Entrant: Brex</h2>\n<p>I mentioned there are new entrants in the venture debt space, and Y Combinator is glad that our portfolio company Brex is now offering venture debt financings to startup companies. Understanding startups’ financial needs is in Brex’s DNA: the company grew quickly because it understood the challenges startups had with accessing basic credit. Brex knows how to serve startups and young companies with a variety of credit solutions and is a welcome addition to this market. YC has shared our concerns with Brex about the pitfalls of venture debt, and Brex has plans to make its venture debt financing terms simple and transparent. While we are confident in Brex’s ability to compete in any market, we continue to believe that all startups should reach out to multiple parties when accessing venture debt. To learn more about Brex’s offering, see <b><a href=https://www.ycombinator.com/"https://www.brex.com/product/venture-debt//">here.

/n

Conclusion:

/n

Venture debt clearly has many benefits &#8212; it offers startups a less dilutive way to inject capital into a healthy, growing business, a business that most traditional banks ignore today. At its best, venture debt is an effective complement to equity financing, and helps accelerate a company’s growth. But accessing venture debt is not without risks<a id=\"footnote2a\"><a href=https://www.ycombinator.com/"#footnote2\">^<b>2</b></a></a>. Founders should be realistic and ask themselves whether they are taking on a burden that can be repaid. A company is best positioned to assume venture debt when it is confident in its ability to repay the loan, which will eliminate all associated risks.</p>\n<h3>GLOSSARY: BASIC TERMINOLOGY (for familiarity only; counsel needs to be hired):</h3>\n<p><u>Commitment</u>: What type of commitment is your venture debt investor making? How much money is being offered? When can your company access the money? Does the company need to “draw-down” over time? Can the company access all the capital at once?</p>\n<p><u>Term Loan/ Revolver</u>: Term loans are for a set time period (i.e. 3 years) and have a fixed payment schedule. The payment schedule can be “amortized” meaning that both the principal and interest is paid through periodic payments e.g. a mortgage; a “bullet” payment means the interest payment is made throughout and the principal is paid at the end of the term (aka the “maturity” date).</p>\n<p>Revolvers are like credit cards or a line of credit: a borrowing limit is set by the lender. Most venture lenders charge a “commitment fee” – the fee can be a flat fee or a fixed percentage of the commitment and is intended to compensate the lender for keeping open access to the money. Make sure to understand how much money is being paid on fees: venture lenders tend to nickel and dime companies with tiny fees.</p>\n<p><u>Interest Rate</u>: Interest rate is a crucial term and varies on a company’s ability to repay; the rate may vary from ~6-10%. Term sheets often express interest as “Prime rate plus x%”. Many lenders offer an interest only period prior to requiring repayment of principal.</p>\n<p><u>Warrants</u>: Warrants are another critical term and provide the lender with potential upside as a stockholder in a venture backed company. Warrants are typically a percentage of the commitment (i.e. 5% of $2mm). Most lenders ask for preferred stock based on a company’s last round, but an increasing amount of recent term sheets request a set percentage of common stock. Obviously, it is important to speak to multiple lenders when negotiating interest rates and warrant coverage.</p>\n<p><u>Prepayment Penalties</u>: Founders should make sure there are no charges for paying back their loan early (can be very useful if the market improves).</p>\n<p><u>Investor Abandonment</u>: A clause that allows the lender to demand repayment if a company’s investor doesn’t invest in the company’s future round.</p>\n<p><u>Negative Pledge on IP</u>: A clause that prevents a company from pledging its intellectual property to another party while the loan is outstanding. Sometimes lenders ask for a first-priority security interest on a company’s IP &#8212; this is a term companies should not accept.</p>\n<p><u>Field exams/ legal costs</u>: Beware of hidden fees! Look for clauses that allow the lender to conduct on site exams (at the company’s expense). Make sure to cap legal fees and do not pay the lender for documents that have been drafted a hundred times.</p>\n<p><u>Current Ratio/ Quick Ratio</u>: These financial terms measure a company’s liquidity and may impact how large a commitment a lender makes. The “current ratio” measures a company’s assets by dividing the company’s assets by the amount of liabilities. The “quick ratio” only includes the most liquid current assets that can be turned to cash quickly, and does not include inventory, supplies, etc. Venture debt lenders often use these ratios in covenants to monitor liquidity.</p>\n<p><u>Default Provisions</u>: Defaulting on a loan allows the lender to ask for its money back and can kill a company. There are different types of defaults in venture loan contracts: technical default (violating a covenant); monetary default (missing a payment); change in status default (legal judgment); and there are subjective defaults: “material adverse change” or “investor abandonment”. It is important to maintain a good relationship with your lender, especially if there is a subjective default provision that may be triggered. In these circumstances, a lender bank may choose to revise its debt, or make the more draconian decision to send the loan to its bank’s workout group.</p>\n<hr />\n<p><a id=\"footnote1\"><a href=https://www.ycombinator.com/"#footnote1a\">^<b>1</b></a></a> Venture debt terms and concepts are very simple; the language may seem daunting because it is unfamiliar. The dynamic is similar to equity financings: it is disconcerting for founders when they first hear preferred stock financing terminology (e.g. liquidation preference, broad-based weighted average anti-dilution, right of first refusal and co-sale rights). But all YC founders quickly get up to speed and understand the meaning of these simple concepts. Venture debt terminology may seem unfamiliar, but also can be understood quickly.</p>\n<p><a id=\"footnote2\"><a href=https://www.ycombinator.com/"#footnote2a\">^<b>2</b></a></a> I have not listed all the risks associated with venture debt. It is important to note that unlike equity, venture debt requires a startup to agree to financial “covenants” &#8212; e.g. a startup needs approval before incurring additional indebtedness, selling assets, etc.. More important, in a downside scenario, a venture lender often influences a company’s ultimate exit. That means if a company is running out of capital and has two options, one which employees prefer and one which is better for the bank, the company probably will have to choose the option that is better for the bank. These risks further highlight why founders need to be realistic about their ability to repay. To emphasize, founders should remember that venture debt is a debt that needs to be paid back.</p>\n<!--kg-card-end: html-->","comment_id":"1104897","feature_image":"/blog/content/images/2022/02/BlogTwitter-Image-Template-1--1-.png","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2021-08-26T01:59:44.000-07:00","updated_at":"2022-02-03T16:34:50.000-08:00","published_at":"2021-08-26T01:59:44.000-07:00","custom_excerpt":"In this guide, YC Managing Director Jon Levy talks about venture debt. He covers what it is, walks through some of its benefits and risks, and gives advice on how to approach the process of taking on venture debt.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a7109c","name":"Jon Levy","slug":"jon-levy","profile_image":"/blog/content/images/2022/02/jon.jpg","cover_image":null,"bio":"Jon is Managing Director, Partnerships at Y Combinator. He previously counseled public and private technology companies as an attorney for Wilson Sonsini Goodrich and Rosati.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/jon-levy/"}],"tags":[{"id":"61fe29efc7139e0001a71174","name":"Advice","slug":"advice","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/advice/"},{"id":"61fe29efc7139e0001a7116d","name":"Essay","slug":"essay","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/essay/"},{"id":"61fe29efc7139e0001a71170","name":"Startups","slug":"startups","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/startups/"}],"primary_author":{"id":"61fe29e3c7139e0001a7109c","name":"Jon Levy","slug":"jon-levy","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/jon.jpg","cover_image":null,"bio":"Jon is Managing Director, Partnerships at Y Combinator. 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He covers what it is, walks through some of its benefits and risks, and gives advice on how to approach the process of taking on venture debt.","reading_time":8,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},"mentions":[],"related_posts":[{"id":"62f15573ab52db0001d3b642","uuid":"e8dc2872-d758-4a06-ae83-b071c12240b3","title":"Learnings of a CEO: Wade Foster, Zapier","slug":"learnings-of-a-ceo-wade-foster-zapier","html":"<p>Welcome to the second edition of Learnings of a CEO. You can read the first edition <a href=https://www.ycombinator.com/"https://www.ycombinator.com/blog/learnings-of-a-ceo-max-rhodes-faire/">here. </p><p><a href=https://www.ycombinator.com/"https://zapier.com//">Zapier was founded in 2012 by <a href=https://www.ycombinator.com/"https://twitter.com/wadefoster/">Wade Foster</a>, <a href=https://www.ycombinator.com/"https://twitter.com/bryanhelmig?lang=en\%22>Bryan Helmig</a>, and <a href=https://www.ycombinator.com/"https://twitter.com/mikeknoop/">Mike Knoop</a>. The founders went through YC’s <a href=https://www.ycombinator.com/"https://www.ycombinator.com/companies/zapier/">Summer 2012 batch</a> and <a href=https://www.ycombinator.com/"https://www.ycombinator.com/growth-program/">S18 Growth Program</a>, and today, Zapier automates work by connecting with over 5,000 apps. The company has been profitable since 2014 and is valued at $5B – with 700 employees working remotely. Wade, Zapier CEO, shared his learnings growing into the role of a growth-stage CEO. </p><p><strong>How has your job as a CEO changed from leading a 3-person company in 2012 to a 700-person organization today? </strong></p><p>In the early days, you’re in the trenches with your co-founders and early employees splitting up tasks and touching nearly every part of the business. Often you’re writing code, selling products, recruiting, and helping with HR and finance functions. Today, Zapier is almost a team of 700 – and as we’ve grown, people have taken more and more duties from me to help the company grow and scale.</p><p>Now, one place I feel I am most needed is the vague concept of setting the vision and communicating that vision — and then ensuring everyone understands what we are doing, why it’s important, and their role in getting that done. This came naturally to me when we were small and I was in the trenches with everyone and communicating constantly. But as we hired more folks, I realized leaders were interpreting the vision to their team somewhat differently. I learned that if you are not communicating the vision well, you'll have teams that seem to be working on random projects. In isolation this isn’t bad, but as a collective set of tasks, you discover their work doesn’t fit into the vision. </p><p>We now repeat the vision over and over again in many formats. We put the vision in writing and it's constantly referenced; it's communicated at our all-hands; we bring in customers to talk about Zapier’s impact; we show data, so charts and figures can help tell the story; we have a company podcast. </p><p>When people inside the company start to turn the vision into a meme or Slack emoji, I know they really get the vision. Diagnostic tools, like employee engagement surveys, also help me understand how well employees understand why their role is important. It’s also evident when reviewing roadmaps. If a team’s tasks are tight and cohesive, I can tell they’ve been making tough decisions to align to the vision; if there are a bunch of random tasks, I can tell the vision hasn’t been communicated clearly. As a CEO, you have to ask, “Tell me how this is aligned,” and force those conversations to occur. Over time, people will get more comfortable with these types of assertive exercises. </p><p><strong>As you've grown, what changes have you had to make to keep everyone at your company aligned?</strong></p><p>We host weekly all hands, bring customers in to talk at those all hands, are transparent with metrics, and make sure those metrics are reflective of the good and the bad. Ultra transparency with metrics has served us well, as they are motivating and help people get aligned. People start to ask, \"How do we get these bad metrics to the good category?\" and then work towards change.</p><p>Being candid has also served us well. Whether at all hands, on a podcast, or solely talking with one of our leaders, we have candid conversations about why we didn’t hit a goal, why we were off schedule, why a deal didn’t close – and then immediately dive into what we think needs to happen next. The goal is to give awareness to the organization, so that in various meetings and forums people can try to figure out how to improve those areas.</p><p><strong>What's your advice to other founders on how to hire executives?</strong></p><p>Hiring executives is one of the hardest things you’ll do as a CEO. It's hard to determine when to start hiring executives, exactly what you’re looking for in an executive, and then find that person. </p><p>The best way to figure out when to start hiring executives is to meet with people who are unquestionably good executives at companies a stage or two further along. With no intention to hire them, meet with the VP of Engineering, VP of Marketing, and VP of People and ask, \"What are the things you do? What makes you great at this job? What do people in your job disagree on?”. Get as smart as you can on this topic and then compare and contrast what that set of leaders is telling you with how your company operates. If these executives wouldn’t bring anything new to the table, you may not be ready for that type of leader. This starts to help you answer the when part of the equation – and also the what, because you start to see what these folks are capable of and what they are not. </p><p>Part of determining what you should look for in an executive is understanding your own strengths and weaknesses. This requires honesty with yourself and internalizing feedback you have received. (I encourage folks to work with executive coaches and get 360 performance reviews.) Figuring this out helps you start to realize, \"Okay, within my executive team, I need people who will compliment me in these ways.\" Otherwise, you risk hiring a team that is quite capable and competent at their function, but actually may not work well with each other or with you.</p><p><strong>What is Zapier’s culture? What do you do to cultivate it as a remote company?</strong></p><p>We have a strong set of values that we align around. One is default to action. We hire folks who are action-oriented – and we have to as a distributed company; folks aren’t in situations where they notice someone next to them is stuck on something. So, they need to be curious, self-starters, and (figuratively) scratch and itch when they see something that doesn’t satisfy their innate drive. </p><p>Next, we value defaulting to transparency because folks who are action-oriented should be equipped with a ton of context. The mission, strategy, metrics, goals, systems and processes – all of it – is well documented and organized so people can find them and take action.</p><p>We also have a feedback-oriented culture. I teach a course on feedback to all the new folks to ensure they understand how to ensure they understand how to give and receive feedback effectively because it helps us grow. </p><p>The rest of our values are outlined <a href=https://www.ycombinator.com/"https://zapier.com/jobs/culture-and-values-at-zapier/">here, but these are some of the things that drive Zapier’s culture – and as you scale, it’s crucial to create different forums to communicate these values. We have an internal tool we named Async, which is email meets Reddit. The platform is public by default, anyone can post, and information can be targeted at different groups or people. We find this is great for long-form substantive topics that have a longer shelf life (1-2 weeks) versus Slack channels (1-2 days). We also hold all hands and have a company podcast, where we capture evergreen content. For example, when we have key moments in the company history, we’ll break it down: Why we did this thing, what led to that decision, the outcomes, why it is an important moment, etc. We have found podcasts to be helpful when onboarding new folks. </p><p><strong>Why did you decide to not raise any additional funding since your seed round?</strong></p><p>The only funding we took in the history of the company was a $1.3M seed round in 2012. This was partially philosophical and partially about the business. </p><p>The three of us co-founders had worked at a fast-growing, bootstrapped company owned 50/50 by two brothers. When we came out to the Valley (we were from Missouri), we started to hear this line of thinking, “No great company has ever done X.\" Some of these statements would center around the impact of venture funding, and I was dismissive in part because I had this counterexample from my time in Missouri. So, when we raised the seed round, we decided to treat it like the last round we’d ever raise.</p><p>Our second reason for not raising multiple rounds: Across the founding team, we had all the skill sets to do every job inside the company. That meant we didn't have to hire to make progress in the early days. We even had rules in place around hiring like, “Don’t hire until it hurts.” </p><p>Then there was the third, rational component: We were able to grow quickly without external funding because of Zapier’s network effect on our developer platform side. We're able to have low customer acquisition costs (mostly through organic channels), and this is intrinsic to how Zapier works. </p><p>Along the way, some of the philosophical thinking fell by the wayside by observing other companies and realizing fundraising is a tool like anything else. There are moments when it can help you, and there are moments when it can hinder you. You should strive to understand when external funding is a good tool to use versus when it is not – and then apply it if it makes sense for you.</p>","comment_id":"62f15573ab52db0001d3b642","feature_image":"/blog/content/images/2022/08/BlogTwitter-Image-Template.jpg","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2022-08-08T11:26:59.000-07:00","updated_at":"2022-08-15T12:08:14.000-07:00","published_at":"2022-08-09T08:55:00.000-07:00","custom_excerpt":"Today, Zapier automates work by connecting with over 5,000 apps. The company has been profitable since 2014 and is valued at $5B – with 700 employees working remotely. Wade, Zapier CEO, shared his learnings growing into the role of a growth-stage CEO. ","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710a7","name":"Lindsay Amos","slug":"lindsay-amos","profile_image":"/blog/content/images/2022/02/Lindsay.jpg","cover_image":null,"bio":"Lindsay Amos is the Senior Director of Communications at Y Combinator. In 2010, she was one of the first 30 employees at Square and the company’s first comms hire.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/lindsay-amos/"}],"tags":[{"id":"62b9edfe063d2d0001f0fc58","name":"#442","slug":"hash-442","description":null,"feature_image":null,"visibility":"internal","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/404/"},{"id":"61fe29efc7139e0001a71181","name":"YC Continuity","slug":"yc-continuity","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/yc-continuity/"},{"id":"61fe29efc7139e0001a71152","name":"Founder Stories","slug":"founder-stories","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/founder-stories/"},{"id":"61fe29efc7139e0001a71174","name":"Advice","slug":"advice","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/advice/"},{"id":"61fe29efc7139e0001a71158","name":"Leadership","slug":"leadership","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/leadership/"},{"id":"61fe29efc7139e0001a71170","name":"Startups","slug":"startups","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/startups/"},{"id":"61fe29efc7139e0001a71155","name":"Growth","slug":"growth","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/growth/"}],"primary_author":{"id":"61fe29e3c7139e0001a710a7","name":"Lindsay Amos","slug":"lindsay-amos","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/Lindsay.jpg","cover_image":null,"bio":"Lindsay Amos is the Senior Director of Communications at Y Combinator. In 2010, she was one of the first 30 employees at Square and the company’s first comms hire.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/lindsay-amos/"},"primary_tag":null,"url":"https://ghost.prod.ycinside.com/learnings-of-a-ceo-wade-foster-zapier/","excerpt":"Welcome to the second edition of Learnings of a CEO. You can read the first edition here. ","reading_time":6,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a71ba2","uuid":"a2de7e9b-655c-4b88-af38-1d4df1e6630f","title":"Meet 8 YC startups that are hiring right now","slug":"meet-8-yc-startups-that-are-hiring-right-now","html":"<!--kg-card-begin: html--><p>Many YC startups are actively hiring on <a href=https://www.ycombinator.com/"https://www.workatastartup.com/">Work at a Startup</a> across engineering, product, design, marketing and more. We asked founders to shoot a 30-second video describing their businesses and open roles. Meet them below:</p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=https://www.ycombinator.com/"https://www.youtube.com/embed/videoseries?list=PLQ-uHSnFig5P_7Vrgb-hrPRnA6tqyX233\%22 frameborder=\"0\" allow=\"accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen></iframe></p>\n<p>About each company:</p>\n<ul>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/1884/">Curebase is a CRO and software platform for distributed clinical trials. <em>Hiring: Software Engineer, Trial Manager and Product Manager.</em> </li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/1276/">Curtsy makes it easy for women to buy and sell clothes from their phone. <em>Hiring: Product Design and Software Engineer.</em> </li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/76/">OneSignal creates developer APIs for push notifications, in-app messaging, and email. <em>Hiring: Front-end, Mobile, Back-end and Senior Engineers.</em></li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/13332/">PostEra provides chemistry-as-a-service to design and synthesize molecules faster and at a lower cost. <em>Hiring: Software and ML Engineer.</em></li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/12660/">Rosebud AI</strong></a> creates software generated photos for advertising and marketing. <em>Hiring: Deep-learning Engineer.</em></li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/12609/">Soteris creates ML software to route and price insurance risk. <em>Hiring: ML and Back-end Engineer.</em> </li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/989/">Tovala makes home-cooked meals effortless. <em>Hiring: Software Engineer, Marketing, and Social Media Manager.</em> </li>\n<li><a href=https://www.ycombinator.com/"https://www.workatastartup.com/directory/13146/">Eternal is a rewards program for gamers. <em>Hiring: Product Design and Front-end Engineer.</em> </li>\n</ul>\n<p>And if you&#8217;re looking for a new job, apply with a single profile to over 400 YC startups on <a href=https://www.ycombinator.com/"https://www.workatastartup.com/">Work at a Startup</a>.</p>\n<!--kg-card-end: html-->","comment_id":"1104267","feature_image":"https://images.unsplash.com/photo-1542744173-8e7e53415bb0?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=MnwxMTc3M3wwfDF8c2VhcmNofDU3fHxoaXJpbmclMjBub3d8ZW58MHx8fHwxNjQzOTM0NzEz&ixlib=rb-1.2.1&q=80&w=2000","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2020-04-09T04:59:26.000-07:00","updated_at":"2022-06-27T13:08:02.000-07:00","published_at":"2020-04-09T04:59:26.000-07:00","custom_excerpt":null,"codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710bf","name":"Ryan Choi","slug":"rchoi","profile_image":"//www.gravatar.com/avatar/36ba914c5f191f813e96db0296154469?s=250&d=mm&r=x","cover_image":null,"bio":"Ryan works with YC companies to find great engineers — from 2-person startups to larger ones like Airbnb, Stripe and 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Choi","slug":"rchoi","profile_image":"//www.gravatar.com/avatar/36ba914c5f191f813e96db0296154469?s=250&d=mm&r=x","cover_image":null,"bio":"Ryan works with YC companies to find great engineers — from 2-person startups to larger ones like Airbnb, Stripe and Instacart.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/rchoi/"},"primary_tag":{"id":"61fe29efc7139e0001a71170","name":"Startups","slug":"startups","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/startups/"},"url":"https://ghost.prod.ycinside.com/meet-8-yc-startups-that-are-hiring-right-now/","excerpt":"Many YC startups are actively hiring on Work at a Startup across engineering, product, design, marketing and more. We asked founders to shoot a 30-second video describing their businesses and open roles. Meet them below:","reading_time":1,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":"Photo by <a href=https://www.ycombinator.com/"https://unsplash.com/@campaign_creators?utm_source=ghost&utm_medium=referral&utm_campaign=api-credit\%22>Campaign Creators</a> / <a href=https://www.ycombinator.com/"https://unsplash.com/?utm_source=ghost&utm_medium=referral&utm_campaign=api-credit\%22>Unsplash%22},{%22id%22:%2263d45276ba7a5900012d1cb7%22,%22uuid%22:%22539ff8b7-1511-483b-aade-1dccd48511b1%22,%22title%22:%22Learnings of a CEO: Snapdocs’ Aaron King on navigating market cycles","slug":"learnings-of-a-snapdocs-aaron-king-on-navigating-market-cycles","html":"<p>Welcome to the fourth edition of Learnings of a CEO. You can read previous editions <a href=https://www.ycombinator.com/"https://www.ycombinator.com/blog?query=learnings%20of%20a%20CEO\%22>here. </p><p><a href=https://www.ycombinator.com/"https://www.snapdocs.com//">Snapdocs is the leading digital closing platform for the mortgage industry. Today, the company touches 25% of all US real estate transactions and is valued at $1.5B. Founder and CEO <a href=https://www.ycombinator.com/"https://twitter.com/a_w_king/">Aaron King</a> and his team have expertly navigated fundraising and market cycles. We sat down with Aaron to hear his insight into getting a business up and running with minimal outside funding and building through volatile market conditions. </p><p><strong>Why did you decide to raise minimal funding early in the company’s history?</strong></p><p>I never considered funding to be a requirement for building — but I also didn't know much about fundraising early on in the company’s history. Snapdocs was started as a side project a couple of years before ever thinking about applying to YC. By the time I applied, we had a live product, customers, and revenue. Even after YC, we didn’t raise much immediately. We stayed focused on building and then raised a seed round later in the year.</p><p>It wasn’t until three years later that we raised our Series A. By then, we had spent about $1MM of our seed round and were at a $5MM revenue run rate. Around that time we started working with much larger customers, and it was clear we would need more capital to be successful in this bigger market. So, we raised our Series A. After we closed the round, our lead investor revealed how capital efficient we had been compared to our peers. </p><p><strong>Do you feel you had to ruthlessly prioritize when building the product because you didn't have the capital?</strong></p><p>Yes, and I’ve learned that you should take the same approach even when you do have the capital to be less disciplined. Back then, ruthless prioritization was our only option. We couldn’t afford to build features that weren’t essential. There were always a hundred distractions that would result in a broader, less focused product. But our capital constraints kept us focused on going deep with our paying customers. That helped us avoid the common trap of building products no one wanted. </p><p>It also meant that when we decided to build a product, we had to think about the smallest version of that product in order to quickly ship. That helped ensure we had a short feedback loop from our users and ensure our resources were continuously being invested in building the right features. Looking back, I’m amazed at how much we were able to accomplish without spending much capital. </p><p>Being capital constrained forced good behaviors that served us well even after we raised more funding. We continue to be thoughtful about every dollar we spend. But, there is a cost to this approach, and we’re paying for it today. We built many things that weren't engineered for scale or flexibility. However, now we can afford to reengineer those unscalable solutions because we built something people want.</p><p><strong>What did your product cycles look like before you raised your Series A?</strong></p><p>We were always heavy on customer involvement when building product. We spent a lot of time in our customers’ offices watching them use what we were building and understanding their work. We also kept a lot of our prospects in the loop as we built new features. Some of the best feedback came from people who had chosen to not yet work with us. Responding to that feedback with a killer feature was a great way to ultimately get them on board. </p><p>We built a lot of trust and rapport with these early customers, and the in-person interactions helped immensely. As a result, they would call one of us the moment they thought there was a problem or if they thought a competitor was doing something compelling. Customer churn for Snapdocs has always been incredibly low as a result. </p><p>We created a disciplined product release process, even in those early days, but we were still able to move quickly. We shipped code every day, sometimes multiple times a day. Customers were impressed by how quickly we could respond to issues and feedback. </p><p>Interestingly, not having too much pressure from investors early on allowed us to experiment more in an underappreciated part of our market. The Serviceable Available Market (SAM) of our initial product was roughly only $20MM, but we believed it would allow us to expand into more critical parts of the mortgage ecosystem. It was the type of opportunity that would be hard to discover through market analysis or spreadsheet exercises. You had to get deep into the problem set to see the opportunity and develop the right strategy—and that ultimately worked to our advantage. </p><p><strong>Founders need capital to hire employees. As a bootstrapped company, what was your strategy around hiring? </strong></p><p>Hiring was hard, but we did a few things that worked well. Even before the company could afford full-time employees, I worked with talented contractors. I also leaned on friends to help me work through both technical and business challenges. Someone would come over and whiteboard with me or we’d get into the code and work through a problem. </p><p>When I could afford to hire full-time employees, I treated them like founding team members. I was generous with equity and shared everything about the potential and challenges of the business. We built a lot of trust as a small team. Getting a few really good people into the company early on was foundational to the company’s success. </p><p>The first person to join full-time was an engineer I had worked with in a previous role (and one of the friends that would help in those early days). The second and third hires were applicants from job postings on Hacker News. All three turned out to be excellent. None of us initially had large networks in the startup world, so most of our early hiring involved lots of interviews and hiring a few of the wrong people. We couldn’t attract well-known talent and took risks; invested in people we thought had a lot of potential. </p><p>One mistake I made in the early years was being too timid to approach more of the people I respected. I should have tried to convince them to quit their successful jobs and join our small (yet risky at the time) startup. I’m fearless on this approach now, but back then I was intimidated to try to convince a friend to join a company that might fail. In hindsight, I did them a disservice by not trying to recruit them. The truth is that these people are smart and you’re not harming anyone by sharing your vision and the potential of the company with them. As long as you’re honest and transparent about the inherent challenges, you should give them the opportunity to take a risk on you. </p><p>As Snapdocs grew, it became easier to pull from the team’s networks. We continued to build a lot of trust within the team, and they started referring their friends to apply. Eventually, we attracted well-known investors, and that, along with our culture and growth, made hiring easier. </p><p>Because we were capital constrained, we also didn’t hire anyone until there was a clear and painful need. It made running the company harder because we were all spread thin but ultimately made us incredibly productive, as it meant we were always working on the most important things. </p><p><strong>How have you navigated different market conditions? When do you decide to react?</strong></p><p>A big part of our success has come from selectively ignoring some market changes while reacting quickly to others. It has always been a question of how the change aligns with our resources, vision, and north star metric of market share growth. </p><p>For example, the biggest and most dynamic change we regularly experience are fluctuations in the number of mortgages that happen in a given month or year. This can change quickly based on a host of economic factors. When we are well-resourced and growing fast, we can ignore some of those market downturns and stay focused on market share growth — knowing we have the momentum and capital to power through it. Other times we’ve had to scale up or scale back based on the size of the fluctuation.</p><p>But other market dynamics can change quickly too, like the industry’s appetite for new technologies and the competitive landscape. There have been times when the market was demanding a technology but we believed there were underlying factors in the industry that would prevent that tech from scaling. If we built the technology, it would pull resources away from the priorities that drove us toward our long-term goals. And so, sometimes to the protests of our sales team, we ignored it or invested minimally in these trendy areas. By doing so, we were able to stay focused on the things that were truly going to transform the industry. </p><p>It’s also worth noting that navigating change was relatively easy in the first few years of building the company. It was a lot easier to adjust course on company direction or strategy when the team was smaller and could all fit in the same room. The product cycles were relatively short and malleable. The cost of making a change was low. </p><p>As the company has grown, we’ve had to be a lot more thoughtful and methodical about changing the speed or direction of the business as we react to market changes. The cost of making a change has increased a lot. Investments take longer to play out. Changes to headcount take longer to scale up or down. There are more people on the team and more layers in the organization to communicate the change through. </p><p><strong>In March 2020, Snapdocs made a huge shift because of changes you were seeing in the housing market. How did you communicate this shift to your team and ensure their goals were aligned with the new priorities? </strong></p><p>COVID accelerated demand for our product, but with that came a shift in what our customers wanted from a platform like ours. We had to expand quickly to serve their needs, and we had to pivot our roadmap on a dime. It’s a testament to the team that we were able to pull that off. </p><p>To make decisions quickly and then communicate them, we worked in concentric circles. We started by discussing the change in a smaller group of 3-4 people. This is where the hardest and messiest conversations took place. We moved quickly to define the problems and opportunities and set a direction for the company. We then looped in the senior leadership team for further discussion and to arm them with everything they needed to share the directional changes with their teams. Finally, we held a company-wide meeting to share the new direction and answer questions. All of this happened over the course of about 2 weeks.</p><p>Now, our business required more speed and flexibility as information was coming in and changing week on week. We dealt with this by creating temporary pods of 4-5 team members focused on solving specific challenges that would spin up for a few weeks and then dissolve once the challenge was addressed. We also increased the frequency of our company-wide all-hands meetings from monthly to weekly so we could keep the whole company up to speed. </p><p>Luckily we had a deep culture of transparency that goes back to the beginning of the company. We’ve always tried to share everything with our entire team — our cash balance, monthly growth rate, burn, our biggest challenges. This got harder as the team grew, but we’ve largely continued this transparency to today. It’s much easier to be transparent in times of great change if you've laid a foundation of trust and transparency in the past. </p><p>We also worked hard to be intellectually honest about the growth we were experiencing. It’s easy to take credit when the business accelerates, but our message to the team wasn't, “Look at how great we're doing.” The message was closer to, “This industry works in cycles. We're in an up cycle now and that's great. There's going to be a down cycle. We don't know when or how strong it's going to be. But we should not overly congratulate ourselves for the current situation, just as we shouldn’t be too hard on ourselves when we’re fighting through an inevitable downturn in the future.”</p><p><strong>In 2021, Snapdocs </strong><a href=https://www.ycombinator.com/"https://www.snapdocs.com/resource-center/blog/announcing-our-150m-series-d-funding-round/">announced a Series D round. How did this change your mentality around resources?</strong></p><p>It was clear that the pandemic would be an accelerator for our business, and we needed to move fast to stay ahead of the market. We went from being frugal to raising larger rounds of capital and hiring seasoned executives who could help us scale. It’s important for companies to evolve at the right points in time and ask themselves, “Is what I did yesterday the thing that's going to get me to where I need to be tomorrow?”. We asked that question and decided we needed to change parts of our culture and capital investment strategy if we wanted to win.</p><p>When we raised capital in 2021, transactions on Snapdocs had steadily increased to millions of closings a year and thousands of lenders and title companies were using our technology every month. Demand for mortgages throughout the pandemic was strong, and we deployed an intentional strategy of prioritizing effectiveness over efficiency. We needed to get aggressive and expand our market position, which required capital. </p><p>The market turned again later in the year, with demand for mortgages cooling. It was clear that it was time to go back to some of our old ways of doing things. We ditched the motto of being effective over being efficient. This meant a return to ruthless prioritization of our focus. We shifted away from investing so heavily in future scale as we wouldn’t need to tap into these systems for a few years.</p><p>I find it helpful to remember that market fluctuations are normal and unavoidable. Startups should scale up at times and scale back at others. It’s hard and painful. There’s nothing easy or enjoyable about being understaffed to meet customer demand on one side, or needing to let team members go on the other. But these ups and downs are natural and a necessary part of building an enduring company. In a startup, you’re always making hard decisions based on insufficient information. You’re never going to be able to perfectly predict the future. You need to keep making the best decisions you can — knowing all the while that you may be wrong and need to change course again once the future becomes clearer.</p>","comment_id":"63d45276ba7a5900012d1cb7","feature_image":"/blog/content/images/2023/02/BlogTwitter-Image-Template--24-.png","featured":true,"visibility":"public","email_recipient_filter":"none","created_at":"2023-01-27T14:38:46.000-08:00","updated_at":"2023-02-22T18:17:22.000-08:00","published_at":"2023-01-30T08:59:00.000-08:00","custom_excerpt":"Founder & CEO Aaron King expertly built Snapdocs through volatile market conditions and with minimal outside funding into the mortgage industry's leading digital closing platform, valued at $1.5B today. 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